The Pluses And Minuses Of Bad Credit/No Downpayment Mortgage Loan Programs

Posted on: 29 June 2016

If you have bad credit and cannot afford a downpayment on a mortgage, many lenders might tell you to forget ever owning a house. However, you might be wondering where all of those loan programs from the early 2000's went--the ones that helped just about anyone get into a house, even if they had bad credit and no money to put down. Most of those lenders went bankrupt or stopped offering these loans when it became apparent that these homeowners were going to owe more than their new homes were worth. Yet, there are still some loan programs available that offer safer alternatives for consumers with bad credit and no downpayment. Here are those programs, with their advantages and disadvantages.

Government-Sponsored Programs

Many of these loans may still require a 3.5% downpayment, but the good news is that they also offer downpayment assistance to help with that 3.5%. The downside to accepting the assistance along with accepting the government mortgage is that it is very similar to having two mortgages on the house. You will have to pay both of these loans back over time, and/or pay the downpayment assistance in full if you sell the home shortly after you just moved in.

Veterans have the best mortgage loan program of all from the government because the program does not require a downpayment. If you or your spouse have served your country here or abroad, you should apply for this loan because your credit does not need to be spotless and you do not need any money up front. There is never any private mortgage or private lender insurance either (which often adds a hefty sum to your escrow or your monthly mortgage payment).

Private Lenders

There are still some private lenders out there willing to invest in your dream of homeownership. You may have to pay a very hefty interest rate on the loan and agree to some difficult repayment terms (e.g., balloon payment of several thousand dollars at the end of the fifteen-, twenty- or thirty-year mortgage). Still, if you want to get into a house now without a downpayment and your credit is terrible, the private lender may be a reasonable option.

Inflated Interest Rates versus Home of Your Own

While the interest rates on the government-sponsored loan programs are typically very good and very encouraging, these programs are a little more difficult to get into, even though they are meant to be easier than traditional mortgages. Private lenders could charge some inflated interest rates, but after the lending crash a few years ago, there is a cap in place that prevents private lenders from charging exhorbitant rates (e.g., eleven, twelve or thirteen percent). Still, if you do not see your credit rating getting better anytime soon and you are desperately trying to save a down payment but it is not working out as planned, these programs should be able to provide you with some assistance towards homeownership. Talk to a lender, like First Mortgage Company, Inc., for help.